Clearly fantasy sports needs outside regulators
October 13, 2015 3:01 AM
by Robert Turner
The daily fantasy sports (DFS) industry was rocked by a scandal last week when it was revealed that Ethan Haskell, DraftKings’ written content manager, had mistakenly leaked player ownership percentages for his site’s Millionaire Maker prior to the start of some of that week’s NFL games.
Haskell then went on to win second place and $350,000 in the NFL Sunday Million at rival site FanDuel that same week.
This incident has led to speculation that Haskell’s success may be attributed to his improper use of insider information. Though DraftKings bans employees from playing on their own site, there were no prohibitions from playing on rival sites – until the scandal broke.
Last week both DraftKings and rival FanDuel released a joint statement that says in part, “We are temporarily restricting employees from participating in DFS contests as an interim measure while we work with the fantasy industry to develop and implement a more formal policy.”
The key words here are “fantasy industry,” which points to the glaring fact there is no outside oversight of this fledgling industry.
Even before this story broke, many were asking, “Where are the regulators?”
Fantasy sports benefitted from a special carve-out in the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA), which essentially sounded the death knell for online poker. Unlike online poker, fantasy sports holds a special status as the UIGEA classifies it as a game of skill stating, “All winning outcomes reflect the relative knowledge and skill of the participants.”
Launched only in 2012 during Major League Baseball’s opening day, DraftKings seems omnipresent now due to the fact you can’t miss being bombarded by ads every time you turn on your television. The massive marketing budget is funded by the money flowing to the site from investors and players alike.
According to an article on Fortune.com called “Fantasy Sports Site DraftKings Takes Bets from More Big Name Investors” dated July 27, DraftKings announced a new round of funding worth $300 million led by FOX Sports and the Kraft Group, owners of the New England Patriots. This round also included investment from the National Hockey League (NHL) and Major League Soccer (MLS) as well as the Madison Square Garden Company. Major League Baseball (MLB) also increased its stake in the company after contributing an undisclosed amount in April 2013, becoming the first US professional sports organization to invest in DFS.
In addition to the funding, DraftKings has also benefitted from valuable partnering agreements. In April, DraftKings and Major League Baseball announced a multi-year deal making DraftKings the league’s “Official Daily Fantasy Game.” The agreement allowed individual teams to offer in-stadium fantasy-related experiences. And in July, DraftKings entered into a three-year advertising deal with ESPN Inc. valued at $250 million.
DraftKings seemed to be on top of the world claiming to have over one million registered players, the same position online poker held in 2006 at the peak of the poker boom. And in one fell swoop, the government seized the domain names of the three biggest names in online poker on April 15, 2011, the day dubbed “Black Friday,” and the industry has never been the same.
As I write this article, “a federal grand jury focused on DFS has been convened in Florida,” according to legalsportsreport.com. The US Attorney’s office in Tampa is investigating whether DFS operators are acting in violation of the Illegal Gambling Business Act (IGBA).
And New York State Attorney General Eric Schneiderman has sent a letter to both DraftKings and FanDuel requesting the names of employees who had access to data that could have been used to gain a personal advantage. The parallels to “Black Friday” are eerily similar.
This story is evolving with new developments seemingly every day. It’s time for the gaming regulators finally to step up and regulate this new industry.
Robert Turner is a legendary poker player and billiard marketing expert, best known for inventing the game of Omaha poker and introducing it to Nevada in 1982 and to California in 1986. In the year 2000, he created World Team Poker, the first professional league for poker. He has over 30 years experience in the gaming industry and is co-founder of Crown Digital Games. Twitter: @thechipburner. Email: firstname.lastname@example.org.